XOMA Royalty Plummets 22.87%: What's Fueling the Selloff?

Summary
• XOMA Royalty (XOMA) trades at $26.50, down 22.87% intraday after a failed Phase 3 trial by partner Rezolute.
• Intraday range spans $25.51 to $29.45, with volume surging to 226,036 shares.
• HC Wainwright lowers price target to $97 from $104, maintaining a 'Buy' rating despite the selloff.

Today’s collapse in XOMA Royalty’s stock has sent shockwaves through the biotech sector. The sharp decline follows Rezolute’s announcement that its partnered drug, Ersodetug, failed to meet primary endpoints in a Phase 3 trial for congenital hyperinsulinism. With the stock trading near its 52-week low and technical indicators flashing bearish signals, investors are scrambling to assess the fallout.

Phase 3 Trial Failure Sparks Investor Flight
XOMA Royalty’s 22.87% intraday plunge is directly tied to Rezolute’s announcement that its Phase 3 sunRIZE trial for Ersodetug (RZ358) failed to meet its primary endpoint. The study, evaluating the drug’s efficacy in treating congenital hyperinsulinism, showed a 45% reduction in hypoglycemia events at the top dose (10 mg/kg) compared to a 40% improvement in the placebo group—a result deemed statistically insignificant. This outcome dashes hopes for a breakthrough therapy, eroding confidence in XOMA’s milestone and royalty revenue potential from the partnership. The stock’s collapse mirrors Rezolute’s 88.48% drop, underscoring the interconnected risks in biotech collaborations.

Biotech Sector Volatility Amid Trial Setbacks
The biotech sector remains under pressure as trial failures ripple through the market. XOMA’s selloff aligns with broader sector trends, where companies like Rezolute and others face sharp declines post-clinical setbacks. However, sector leaders such as Amgen (AMGN) and Regeneron (REGN) show resilience, with AMGN up 0.05% despite the turmoil. This divergence highlights the sector’s reliance on individual trial outcomes, with XOMA’s exposure to Rezolute’s failure amplifying its underperformance relative to peers.

Bearish Options and Technical Divergence Signal Aggressive Shorting Opportunities
• 200D MA: $28.40 (below)
• RSI: 55.26 (oversold but no reversal)
• MACD: -0.529 (bearish divergence)
• Bollinger Bands: $29.61 (lower band)

XOMA’s technical breakdown is evident, with the stock trading 23.7% below its 200-day average and within a 29.61–34.19 volatility range favoring short-term sellers. Two options stand out for bearish exposure:

• XOMA20251219P25 (Put, $25 strike, 12/19 expiration):
- IV: 107.10% (extreme volatility)
- Leverage: 26.71% (high)
- Delta: -0.314 (moderate sensitivity)
- Theta: -0.045 (rapid decay)
- Gamma: 0.079 (high sensitivity to price swings)
- Turnover: 600 shares
- Payoff at 5% downside (24.90): $0.10 per contract. This put offers aggressive leverage for a 5% price drop, with high gamma amplifying gains if the selloff accelerates.

• XOMA20260116P25 (Put, $25 strike, 1/16 expiration):
- IV: 62.05% (reasonable)
- Leverage: 21.37% (moderate)
- Delta: -0.325 (moderate sensitivity)
- Theta: -0.015 (slower decay)
- Gamma: 0.068 (solid sensitivity)
- Turnover: 750 shares
- Payoff at 5% downside (24.90): $0.10 per contract. This longer-dated put balances time decay with liquidity, ideal for a controlled bearish bet.

Aggressive short-sellers should prioritize XOMA20251219P25 for immediate volatility capture, while XOMA20260116P25 suits a measured approach. Both contracts benefit from XOMA’s technical breakdown and sector-wide underperformance.

Backtest XOMA Royalty Stock Performance
The backtest of XOMA's performance after a -23% intraday plunge from 2022 to now shows mixed results. While the stock experienced a maximum return of 8.03% over 30 days, the win rates for 3-day and 10-day periods are lower, indicating that short-term gains were not consistent.

XOMA’s Freefall: A Warning Shot for Biotech Collaborations
XOMA’s 22.87% selloff underscores the fragility of biotech partnerships reliant on single-asset success. With technical indicators and options data confirming bearish momentum, the stock faces critical support at $25.25 (200D MA) and $21.28 (long-term support). Investors should monitor the 200D MA as a key inflection point—break below $25.25 to trigger deeper declines. Meanwhile, sector leader Amgen (AMGN), up 0.05%, highlights the premium on resilient biotech plays. Action: Short XOMA against the 200D MA breakdown or pivot to AI-adopting peers like ACN for defensive exposure.